Australia’s central bank has goals in sight, just waiting on wages
8:55 pm Monday, February 14th, 2022
By Wayne Cole
SYDNEY (Reuters) – Australia’s central bank is closer to meeting its economic goals than it has been for years, but is prepared to be patient on policy as wage growth continues to lag even as inflation picks up.
Minutes of the Reserve Bank of Australia’s (RBA) February meeting released on Tuesday showed its Board was yet to be convinced that the acceleration in inflation would be sustained and wanted to see wages respond before moving on interest rates.
“The Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve,” the minutes showed.
RBA Governor Philip Lowe last week said it was plausible a rate rise could come later this year should the economy continue to beat expectations, a shift from former guidance that a move in 2022 was highly unlikely.
Investors are wagering on a hike as early as June given how inflationary pressures are building across the globe. Markets are fully priced for the 0.1% cash rate to rise to 0.25% in June, and to reach 1.25% by Christmas.
The economy did hit a speed bump in January as the rapid spread of the Omicron variant curbed consumer mobility, but spending has since recovered as cases leveled off.
The labour market remains tight with unemployment at a 13-year low of 4.2% and vacancies at record highs.
Wage growth has picked up somewhat to 2.2% but is still running at less than half the pace of the United States or UK and policymakers would prefer to see it up at 3.0% or more before withdrawing stimulus.
“After a long period of below target inflation, the RBA seems keen to run the economy ‘hot’ for a while,” said HSBC’s chief economist for Australia, Paul Bloxham.
“In particular, the RBA wants to reset inflation and wage expectations, such that wage rises of 3-4% become the norm, after many years of wages growth averaging 2%.”
He expects the first rate hike in the third quarter of this year, with another before year end.
(Reporting by Wayne Cole; Editing by Muralikumar Anantharaman and Sam Holmes)
